Lime Technologies (STO:LIME) sheds 12% this week, as yearly returns fall more in line with earnings growth

Lime Technologies AB (publ) (STO:LIME) shareholders might be concerned after seeing the share price drop 16% in the last quarter. But that doesn't undermine the rather lovely longer-term return, if you measure over the last three years. In three years the stock price has launched 103% higher: a great result. It's not uncommon to see a share price retrace a bit, after a big gain. The thing to consider is whether the underlying business is doing well enough to support the current price.

Although Lime Technologies has shed kr473m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Lime Technologies

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Lime Technologies was able to grow its EPS at 30% per year over three years, sending the share price higher. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 27% average annual increase in the share price. This suggests that sentiment and expectations have not changed drastically. Quite to the contrary, the share price has arguably reflected the EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Lime Technologies has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Lime Technologies' balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Lime Technologies the TSR over the last 3 years was 108%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Lime Technologies shareholders are down 18% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 11%, likely weighing on the stock. Fortunately the longer term story is brighter, with total returns averaging about 28% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Lime Technologies is showing 2 warning signs in our investment analysis , you should know about...

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.